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Stop-Limit Order |
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Stop-limit order A stop order that designates a price limit. Unlike the stop order, which becomes a market order once the stop is reached, the stop-limit order becomes a limit order.
Stop-limit order. A stop-limit is a combination order that instructs your broker to buy or sell a stock once its price hits a certain target, known as the stop price, but not to pay more for the stock, or sell it for less, than a specific amount, known as the limit price. For example, if you give an order to buy at "40 stop 43 limit," you might end up spending anywhere from $40 to $43 a share to buy a stock, but not more than $43. A stop-limit order can protect you from a rapid run-up in price -- such as those that may occur with an initial public offering (IPO) -- but you also run the risk that your order won't be executed because the stock's price leapfrogs your limit. Stop-Limit Order What Does Stop-Limit Order Mean? A type of trade order that combines the features of a stop order with those of a limit order. A stop-limit order stipulates that a buy or sell order can be executed only at the limit price or better once the stop price has been reached. Investopedia explains Stop-Limit Order A benefit of a stop-limit order is that the trader controls when the order can be filled. The downside, as with all limit orders, is that there is no guarantee that the stock price will reach the limit price. If this happens, the order will not execute. A stop order is an order that becomes executable only when a set price has been reached; after that it becomes a market order. A limit order, in contrast, is executed only at a certain price or better. By combining the two orders, the investor has more control over the final trade price. A stop order is filled at the market price after the stop price is reached; therefore, it is possible to get a price very different from what the investor hoped, especially in fast-moving markets. For example, assume that ABC Inc. is trading at $40 and an investor wants to buy the stock once it begins to show some serious upward momentum. The investor places a stop-limit order to buy at a stop price of $45 with a limit price at $46. If the price of ABC Inc. moves above the $45 stop price, the order becomes a limit order to buy at $46 or better (less). As long as the order can be filled at $46 (the limit price) or less, the trade will be filled. If the stock jumps above $46, the order will not be filled. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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